Made in China 2025: Are You On The List?

How does Made in China 2025 fit with other 'Future China' plans? Tan on industries which made the various lists

China like Germany is going circular & now wants to leapfrog to Industry 4.0 with Made in China 2025

10 industries in Made in China 2025 overlap with the 7 12FYP SEI's but not the 10 Circular Economy Industries

Fashion (not on any list) looks set to shift, but given limited water, so is global trade with One Road, One Belt

Made in China 2025; Circular Economy; Water Ten; Internet Plus; One Road, One Belt … These new buzzwords of “Future China” have one thing in common – they are all necessities arising from limited water resources to ensure a water, energy, food and economic secure China. They form key components of China’s march to its goal of “ecological civilization” – to transform the economy so that it can continue to achieve economic development despite limited resources.Basically when your per capita renewable water resources are nowhere close to those of the US or Europe, there is no choice but to do things differently or to make different things. Enter the ‘Made in China 2025 Action Plan’.The plan is touted by the Chinese press to be the first 10 year action designed to transform China from a manufacturing giant into a world manufacturing power. Many also point out that it was “authorized by Li Keqiang”, so rubber stamped from the top. Chinese news also has the Ministry of Industry & Information Technology (MIIT) extolling that the plan will embrace the fourth industrial revolution concept — what some call “Industry 4.0” — while opening itself to advanced ideas from countries such as the United States and Britain.Germany and Japan are also cited by Miao Wei, the Minister of MIIT as examples to follow. Incidentally, Germany and Japan are the only two other countries that have legislated a policy move towards a circular economy (more here). China as the new Germany … imagine that.

Achtung! All change in Industry 4.0

The Economist in March argued that Made in China will endure, citing that China’s share has gone up from less than 3% in 1990 to nearly a quarter of global manufacturing output value now. It also has China producing about 80% of the world’s air-conditioners, 70% of its mobile phones and 60% of its shoes. The list goes on. Yes, China may well still be the world’s factory in 2025 but an “Industry 4.0” upgrade could spell out an “all change” to some existing Chinese industries.Made in China 2025 promotes 10 key industries to facilitate the grand transformation. When looking at who’s in and who’s out, we compared this list to other “future industry lists”. There are two key points worth noting:

The Made in China 2025 Ten clearly overlap the seven 12FYP Strategic Emerging Industries (SEIs). We read this as affirmation of the direction set out in 2011 – China is still proceeding according to plan. Made in China 2025 is an expansion of the 12FYP SEIs and we expect more plans to come detailing more action in each industry.

The Made in China 2025 Ten are not the same as Circular Economy Ten. A mistake in the multiple action plans for China’s future? No. We read this as complementary; it’s a two-prong approach to China’s industrial restructuring:

Develop industrial capacity in high-tech and high-value sectors with the Made in China 2025 Action Plan; and

Consolidate and improve low-end and resource intensive sectors with the Circular Economy Plan.

Given China’s push to “Industry 4.0”, the Circular Economy Ten had better adapt quickly if they don’t want to be left behind and ultimately phased out (more here on how).

Not on the list and most-at-risk – Fashion et al.

Now enter the Water Ten, the sectors singled out by this action plan are those identified in the Circular Economy Ten. In short, the Water Ten is an action plan to carry China some of the way towards a circular economy. In “Comply or Else”, we also pointed out that the textile sector was the sector most targeted by the Water Ten. If you are not convinced, check out “Water Ten & Fashion: 8 Reasons to Leap or Fall”.While the industries highlighted in Made in China 2025 are not new, clothes and shoes are glaringly absent from list; they are in the close-the-loop list. That said, it’s not all doom and gloom – there is “New Materials” … does this mean we are wearing recycled cotton and sustainable viscose soon? Will be wearing lace grown from strawberries? Too far-fetched? Maybe not… Stella McCartney has made a commitment“to ensuring that all [our] cellulose fabrics meet strict sustainability standards by 2017”. But if all brands moved towards this, would our forests be able to support the demand? Or will we have to start recycling or up-cycling waste – see how Redress CEO is “Putting Waste Back into Fashion”.Good news for reshoring? But hang on, inputs still come from China. Fine let’s say those are reshored too, what about raw material exposure? The cashmere goats, sheep and cows will also all have to be “reshored” – more difficult. Pay attention to the China’s agriculture policy – the Water Ten revamps large livestock breeding and in turn fashion. Ultimately, fashion has to go circular.It is clear from initiatives on the ground like NRDC’s Clean by Design and Solidaridad’s Better Mill Initiative that the circular movement has started. But both NGOs lament that more action could be done. We say be warned, a tea-leaves reading of these future plans for China’s all point to one thing for the textile industry – revamp or move out. Given fashion’s exposure to China (be it textiles or raw materials) doubly be warned – you are not on the “right list”.

Global trade also poised to shift in the new paradigm

We have been saying limited water would change global trade since 2011 and again with HSBC in 2014. China has also laid out another “paradigm shift policy” here: “One Road, One Belt”. Introduced in November 2014, it is supposed to be the centerpiece of both China’s foreign policy and domestic economic strategy. Envisaged enhanced networks across Asia include infrastructure expansion, financial integration, trade liberalization and so on (more here).The new silk route not only opens up access to China for exports but for imports also. Let’s also not forget that due to limited resources, China will continue to advocate Chinese companies to “go global”. This is expected to play a more concrete role in the upcoming 13FYP (2016-2020).To be honest, Made in China 2025 is a big ask. Can China leapfrog a couple of versions? Only time will tell. Multiple things need to happen for this to work – better IP protection, fostering innovation, access to capital/technology, competitive marketplace to start.. the list is endless. But apparently “to shore up the plan, China will introduce a slew of policies to deepen institutional reforms and strengthen financial support.” It’s happening. Make sure you are invested in the “right list”. For those exposed to the Circular Economy Ten, it’s time to cover all bases: upgrade to Industry 4.0 and go circular or move out.

Further Reading

China’s Economy: Linear to Circular – After Germany and Japan, China is the third country globally that has enacted polices to move towards a circular economy. China Water Risk’s Thieriot on how and why China needs to make this transition. Which industries are affected, what is the role of industrial parks?

Water Ten & Fashion: 8 Reasons to Leap or Fall – China Water Risks’ Hu shares 8 reasons why China’s Water Ten is actually an ultimatum for textiles to leap or fall. They need to decide which soon, as there is only two to three years before the paradigm shift

On Being Water Conscious in Textiles – Zhao Lin from Solidaridad expands on the Better Mill Initiative (BMI) and provides solid business cases in water savings for the textile sector. See how water & energy savings can result in sustainable & financially viable gains with short payback periods

Clean by Design: Gaining Traction – Many factories look to MNCs to help address environmental issues that have arisen from textile production but there is scant on ground corporate engagement by brands. See how NRDC’s ‘Clean By Design’ textile mill programme in China has achieved stellar results despite this. NRDC’s Linda Greer expands

Putting Waste Back Into Fashion – China is clamping down on textiles due to the heavy pollution & waste from the industry. With potential new revenues streams in recycling, hear from Redress CEO Christina Dean on how the EcoChic Design Award’s army of sustainable designers is closing the loop on textile waste

More on trade

Water Pollution Could Lead to More Trade– Upon the publication of No Water, No Food – ensuring food safety & food security in China, HSBC’s Wai-Shin Chan tells us why China’s war on pollution, the need for self-sufficiency may result in more agri trade

Follow the UK: Import Water – China & the UK have similar per capita water resources. Find out how the UK has managed economic growth by “importing water” through trade. Should China follow suit? Debra Tan muses

Food for Thought – Would China import more chicken or corn from Brazil? Should farming regions swap beef with iPads? Will water hikes dampen demand for water? Debra Tan from China Water Risk muses

Author: Debra Tan

Debra heads the CWR team and has steered the CWR brand from idea to a leader in the water risk conversation globally. Reports she has written for and with financial institutions analyzing the impact of water risks on the Power, Mining, Agricultural and Textiles industries have been considered groundbreaking and instrumental in understanding not just China’s but future global water challenges. One of these led the fashion industry to nominate CWR as a finalist for the Global Leadership Awards in Sustainable Apparel; another is helping to build consensus toward water risk valuation. Debra is a prolific speaker on water risk delivering keynotes, participating in panel discussions at water prize seminars, numerous investor & industry conferences as well as G2G and academic forums. Before venturing into “water”, she worked in finance, spending over a decade as a chartered accountant and investment banker specializing in M&A and strategic advisory. Debra left banking to pursue her interest in photography and also ran and organized philanthropic and luxury holidays for a small but global private members travel network She has lived and worked in Beijing, HK, KL, London, New York and Singapore and spends her spare time exploring glaciers in Asia. Read more from Debra Tan →